How effective is Your estimating Method?

THe ABILITY TO PRODuCe ACCuRATe eSTIMATeS IS One OF THe MOST IMPORTAnT SKILLS A COnTRACTOR CAn HAVe. IT IS KeY TO SuCCeSSFuLLY COMPLeTInG PROJeCTS AnD BuILDInG A BuSIneSS.

estimating is the process of working out the cost of doing the work. A good estimate will also help plan how long a job will take and the steps involved, identify work that needs to be contracted out and consider potential cash flow issues. underestimating the amount and cost of time and materials needed results in unprofitable work. Here are some useful tips to help you review your estimating process so you can maximise your profits.

The Take-Off Sheet

One of the key estimating tools is a ‘Take-Off Sheet’.

A Take-Off Sheet is a purposedesigned form or spreadsheet used to record the various material and labour components of an estimate. The Take-Off Sheet may be a paperbased form, or part of a computerbased spreadsheet. Some software packages include a Take-Off Sheet as an integrated part of the job file.

What should a TakeOff Sheet include?

To complete a well thought out estimate, your Take-Off Sheet should have the following components:  An accurate estimate of the cost of all job materials, broken down into each stage of the job.  A total of the expected labour hours and cost of labour, broken down into each stage of the job.  A method of planning labour and materials requirements, as each stage of the job approaches. estimates should be arranged in a sequence that parallels the expected progress of the works.  A materials list to facilitate the purchase of items, as they are required for each stage.  A safety margin for suspected but undefined problems that may occur.  A way to easily compare estimated costs with actual costs.  A technical reference for similar jobs priced at a later date.  Details of the client, their name for the project, contact person (by name) and phone number.  A method to allow you to determine a minimum profit margin, based on the number of labour hours in the job.

Know your charge-out rate

Your charge-out rate is the hourly rate you charge for yourself and each team member. This needs to include the direct cost of wages plus ‘oncosts’ such as paid leave, public holidays, workers compensation insurance, superannuation etc. It also needs to include ‘overheads’, which are those business costs that cannot be directly attributed to any specific job. examples include, but are not limited to, administration time/cost, office rent, telephones, liability insurance and equipment depreciation/replacement. To help calculate or review chargeout rates, the neCA Foundation offers a charge-out rate calculator on their website www.necafoundation.com.au

Estimating methods

In estimating, there are two main general methods used: 1. Practical experience: Where a job is broken down into its various parts based on the way it is expected to progress. Personal experience is then used to estimate the labour (hours) for each part. Since, in most small and medium operations, the contractor is also the estimator and is often involved in the site work, this method is the most commonly used. 2. Unit rate method: Where the estimator calculates the quantities of items from the plans and other job information and then allocates costs from a labour unit rate list to these items. Many larger, well-established contractors have developed a unit rate list, in which the labour components for many common tasks have been detailed. This method relies on the development of an accurate list, which can only be developed after the work rates of the labour force have been carefully analysed and rechecked over a long period of time.

Using your Take-Off Sheet

A Take-Off Sheet is one of the most important components of any contracting operation. A well-designed Take-Off Sheet will bring all the

USEFUL TERMS

Estimate The contractor’s direct cost to perform a project. It provides a forecast of the expected labour and material components and the associated costs to the contractor to perform the work.

Quote The price offered to the client to perform a project. This must include all appropriate conditions of trading, as it forms the basis of the contract upon which payment will depend.

estimating information into one place, helping to perform several important functions.

1. Job costing: It will help detail the job’s components and develop a reliable cost estimate for the job. If the sheet has space to fully itemise the parts of the estimate, estimators can break down the separate parts of the job into individual material and labour components.

Full detailing also allows the estimator (or someone else) to check the estimate to see if anything has been missed or doubled up.

2. Quoting: Once you have used your

Take-Off Sheet to calculate your delivery costs (your estimate), you can determine the price you will offer your client (your quote). Quoting involves adding a margin to the estimated direct costs to allow for business overheads and your desired net profit.

ESTIMATED COST + PROFIT MARGIN = PRICE OFFERED TO THE CLIENT

A good quote will draw on the information from the estimate, providing both you and the client with a clear picture of the project, its scope, timing and costs. This helps to prevent misunderstandings and build and maintain good customer relationships.

A well-prepared quote also includes terms of trade, forming the basis of the contract between the client and contractor. This enables contractors to pursue payment in the event that a client is unable (or unwilling) to pay.

3. Job Management: After the client has accepted the quote, the

Take-Off Sheet can be used as a useful guide in running the job. (a) Materials List: A detailed TakeOff Sheet can be used to organise jobs in advance, buying or hiring equipment, ordering materials and arranging labour. using this approach, the hours lost obtaining supplies on a day-to-day basis can be reduced to a minimum.

(b) Job Planner: Part of the estimating process involves mentally organising the job, its components and tasks. The Take-Off Sheet can refresh your memory and help you instruct site staff on the work required and help avoid doing the same tasks twice.

4. Reviewing your estimate: Once the job (or each stage) is complete, the Take-Off Sheet can be used to compare the expected job costs with the actual costs. This is an essential process that provides feedback on the estimate’s accuracy and the productivity of site activities. This is critical information for estimating similar projects in future.

The importance of effective estimating

The most important function of estimating is to ensure you charge your client correctly so that the job provides a profit. Many electrical contractors operate at unrealistic low prices, often not covering hidden costs such as overheads and ‘on costs’. As a result, they make as much money, if not less, than they can working for someone else. This isn’t sustainable in the long-run. neCA is committed to helping electrical contractors run sustainable and successful businesses. It offers a range of tools to support contractors with the estimating process. These include estimating courses offered through neCA colleges, resources on the neCA Foundation website and legal and technical advice. For more information on the support neCA can offer your business, contact your local Branch.

Acknowledgement: The content from this article has been extracted from Ken Postill’s ‘Guide to Electrical Contracting’, which will soon be available to NECA members, free of charge on the NECA Foundation’s website: www.necafoundation.com.au